Digital Health Here To Stay Part II: Are emerging regulations tailored to support sustainable digital health markets?

Global digital health funding in 2021 is already 100% year-over-year. Undoubtedly, this market maturity trend has led to larger valuations, new digital health unicorns, and new market opportunities for both buyers and sellers.

Part of what’s made healthcare and its digital promise so compelling is its opportunity for scalability to meet unmet medical need. Yet, we also know that for healthcare, “all healthcare is local” with zip code being one of the most consistent predictors of health status. As such, how can new market entrants, with scalability in mind, grow state-to-state, country-to-country, or more precisely, along the footprint of the transatlantic alliance?

According to the EU-US Trade & Technology Council, the transatlantic alliance accounts for nearly half of global GDP; the #1 EU good export to the United States is pharmaceuticals, while the #2 US good export to the European Union is pharmaceuticals. As digital health thought leaders, we wonder:

• can digital health tools, technologies, and digital therapeutics (DTx) also ride this transatlantic trend for imports and exports?
• If digital health can be imported/exported, then what do early ecosystem companies need to be successful for growth outside of traditional geographies?
• Are proposed and current regulations in place to conduit digital health in large digital health markets, such as the European Union and the United States? 

When talking to DTx companies, we often hear at least a few things they are all extremely excited about: 1) their unique machine learning (or artificial intelligence) proprietary algorithm, and 2) the opportunity for digital therapeutic reimbursement in; e.g. developing the federal reimbursement pathway for the United States, and Germany’s current reimbursement framework, respectively. 

Yet, this dual framework for AI/ML scalability and reimbursement brings at least one piece of EU-level regulation into focus: The Artificial Intelligence Act (AIA). According to the Center for Data Innovation, the AIA would impact scaling into Europe significantly: a company with a €10M topline, and 10% net income would have to forego 40% profit to meet standards related to the AIA, for which all healthcare products with an ML/AI engine would be relegated as “high risk”. Despite best intentions, this single piece of legislation, in its current form, would significantly limit any kind of future digital health market in the EU.

According to the Digital Therapeutics Alliance (DTA) submission to the EU Consultation Response on the AIA, as highlights:

1. “Burdens on AI developers: it is critical that this proposed Act balance the need to enable small, medium, and large businesses to thrive in Europe, while simultaneously ensuring that end users have access to high quality, safe, and effective AI technologies and systems.”
2. “The proposed Act does not sufficiently address the financial and time requirements that small and medium sized enterprises would face if this proposal moves forward as drafted.”
3. “The short and long-term burdens that this Act will place on AI developers would have serious impacts on small and medium sized enterprises based in Europe, in addition to other entities looking to enter the European market.”

For what promises to be a significant piece of legislation, the AIA has somehow flown under the radar for most SMEs and even large healthcare companies with ML/AI capabilities. Moving forward, we will unpack further implications and opportunities for scaling digital health in this dynamic market area between the United States and Europe. We’ll look at market precedents that may serve as a compass for new business opportunities, and we’ll further highlight key data points that give us more of a concrete idea of how ML/AI frameworks are developing in Europe, which may impact rest of world (and funding) for digital health.